Should electric bike sales be subsidized?

Photo: Flickr via Imnop88aAs I argued in part 2, electric bikes could be forerunners for electrifying the whole transportation sector. They’re sweeping into urban areas in China by the tens of millions. New technologies are improving e-bike performance. And powerful institutions are aligning to speed battery innovations.

Many observers now believe e-bikes will grow rapidly in North America, including in the Pacific Northwest. Colorado-based market analysts Pike Research, for example, predict that U.S. sales will quadruple from 250,000 e-bikes in 2010 to more than 1 million in 2016, as shown in the chart below. (Asia is left off the chart, because it’s on a different scale. Some 98 percent of e-bike sales worldwide have been in China.)

To speed this process, one common approach — evident in the bevy of tax credits available for purchasers of hybrid and electric cars — would be to subsidize e-bike sales. That’s what Santa Cruz, California did early in the 2000s decade. Coupons from local authorities helped sell as many as 1,000 e-bikes there, making it briefly the e-bike capital of North America. Similarly, rebates from Swiss localities have boosted e-bike sales in Switzerland. Some 16,000 sold there in the first half of 2009, according to one report.

The implicit assumption behind underwriting new products with public funds is that once they are adequately established in the marketplace, they will spread contagiously without continued public support. The public investment is justified by the subsequent flipping of a market, in which cleaner, greener products push out dirtier products and yield large benefits for society.

This assumption may be reasonable for green products that are new and unfamiliar, such as ground-source heat pumps and green roofs, or that are not produced on a large enough scale to bring down manufacturing costs. But electric bikes are neither new nor unfamiliar: half a million have sold in the United States over the years. And they’re a variation on the ubiquitous bicycle, which is found in a majority of homes. What’s more, we should have already benefited from the economies of scale, insofar as they’re rolling out of Chinese factories at a pace of 20 million a year, far in excess of the scale of U.S. auto manufacturing before the recession. Furthermore, the notion that there is a tipping point for sales of e-bikes is speculative at best. In fact, a look at electric bikes’ progress in North America and abroad leads to the conclusion that they confront a formidable set of barriers to growth — barriers that public sales rebates are unlikely to overcome. I’ll describe these barriers in my next post.